Custodian of the Two Holy Mosques King Fahd Bin Abdul Aziz today received Minister of Finance and National Economy Dr. Ibrahim Al-Assaf and Governor of the Saudi Arabian Monetary Agency (SAMA) Hamad Al-Sayyari, and accepted from them the 32nd annual report on the Saudi economy covering the fiscal year of 1995. The royal audience was attended by Crown Prince Abdullah Bin Abdul Aziz, Deputy Prime Minister and Commander of the National Guard, Prince Sultan Bin Abdul Aziz, Second Deputy Prime Minister, Minister of Defense and Aviation and Inspector-General, and a number of Princes and Ministers.
In his speech, Governor Al-Sayyari reported that the figures indicate the strength of the Saudi economy which has grown steadily under the wise leadership of King Fahd, adding that recent years have shown it to have the flexibility needed for realization of continuing progress even in unfavorable international circumstances. In spite of the sharp decline in oil revenues in 1993 and 1994 due to lower oil prices globally, the Gross Domestic Product (GDP) registered a growth rate of 4.5 percent in 1995 as compared to 1.7 percent in 1994. He went on to state that the economy is predicted to give an even better performance this year, with the GDP increasing to an estimated 6 percent thanks to the wise policies being pursued by the government, the increasing value of oil exports, and the active role of the private sector.
Governor Al-Sayyari also reported evidence of remarkable improvement in the situation of the state budget due to the financial policies aimed at increasing non-oil revenues, as well as rationalization of government expenditure, and the increase in the price of oil. The ratio of deficit to the GDP went down from 11 percent in 1993 to 8 percent in 1994, and 6 percent in 1995. It is hoped that a further decline would be witnessed during 1996, and that the budget deficit would be completely eliminated by the start of fiscal year 1999, as projected in the sixth five-year development plan.
The balance of payments also registered a remarkable improvement whereby the deficit in the current account has continued to shrink steadily over the past five years, decreasing from SR 103.5 billion (U.S. 27.6 $ billion) in 1991, to SR 32.6 billion (U.S. $ 8.7 billion) in 1995. The position of the balance of payments is expected to register greater improvement, approaching equilibrium before the end of the current year. The improvement attained in 1995 and that expected in 1996 can be attributed to the continuing rise in the trade surplus and the decline in the net payments for services and remittances, with the increase in non-oil exports one of the most outstanding positive developments in the foreign trade sector. The total export value went up 19 percent in 1994 and 45 percent in 1995, and all signs indicate that this upward trend will continue.
The Saudi economy sustains no significant pressure from inflation, and the cost of living index remained remarkably unchanged, with inflation rates rising by an average of less than one percent over the last decade. The five-percent increase witnessed by the cost of living index in 1995 cannot be taken as evidence of any real inflationary pressure, since it was a product of the austerity measures of that year's budget, a situation which does not apply this year. During 1996 up to August, the cost of living index increased by less than one percent, a rate which harmonizes with the general trend over the last ten years.
In terms of money and banking activities, the monetary expansion remained moderate with stable prices. The banking sector continued to meet the financial requirements of the private sector, with total loans extended to it increasing by an average of 7.5 percent to reach SR 113 billion (U.S. $ 30.1 billion) by the end of December 1995. Banks extended a large amount of money to the private sector against certificates and government bills issued to farmers and contractors to settle their due payments.
Citing with satisfaction the expansion and diversification of investment services being rendered by banks to meet the demands of clients, Governor Al-Sayyari reported that such trends have led to a remarkable growth in activity to the extent that their total capital and reserves reached SR 41 billion (U.S. $ 10.9 billion) by the end of August 1996, saying: "I am pleased to confirm to you that the Saudi banks, equipped with advanced technical and technological means along with qualified national cadres, effectively and capably render the best of banking services for the citizens and the economy with optimum global standards."
Governor Al-Sayyari asserted that while the achievements of the Saudi economy are extremely encouraging, it is also important to cite the ability shown by the government to continue the economic adaptation process to reinforce achievements, lessen the burden of indebtedness and set the economy on the right track to preserve constant economic growth. The recent improvement in the oil income will realize two goals simultaneously, the balance of the state budget and diversification of the economy.
The current five-year development plan (1995-1999) has strongly emphasized reinforcement of the private sector, which has achieved an average annual growth rate of 3.9 percent. Governor Al-Sayyari expressed the hope that the private sector invest its huge assets in profitable fields nationwide, and cited with satisfaction the success of the monetary policies in realizing stability of domestic prices and exchange rates, saying SAMA will continue its efforts with other concerned bodies to realize the economic and financial prosperity of the Kingdom.